Despite evidence last year that equity volatility was falling, credit spreads narrowing and higher-risk assets booming, high-net-worth investors (HNWIs) remained cautious. They have learnt hard lessons about risk and return over the past 12 months, according to Enid Yip, chief executive for Asia at Sarasin Rabo Investment Management.
'Investors are looking more closely at counterparty risk, concentration risk - diversifying their holdings, both by instrument and region - and more active currency planning to deal with potential currency risk/appreciation across Asia,' she says.
A greater appreciation of the many facets of risk is one of several effects the global financial crisis has had on HNWIs. Their newfound prudence is reflected in a yearning to better understand investment products, a requirement for greater transparency in what they are being offered and a search for simpler products, such as equities and bonds.
As a gauge of this simpler approach, investment activity at the beginning of last year resumed on the back of simple equity and fixed-income investments, according to Michael Benz, head of products and services at UBS Wealth Management, Asia Pacific. But with what seemed like a recovery under way, clients moved into more diversified products and there was a noticeable appetite for simple structured products, such as equity linked notes.
'But in general, the risk appetite is smaller than it was prior to the financial crisis, and investment behaviour has also changed,' Benz says. 'Clients expect more professional advice, a proper view on the investment, then the most appropriate products. The advisory process now has to happen in a better-structured investment framework with the client in control.'
This cautious approach was vindicated by an end to the bounce-back in the first half of last year, signalled by the sharp rebound in the Chicago Board Options Exchange Volatility Index (VIX) in October to levels not seen since the first quarter.